COMMISSIONER OF INCOME TAX, GUJRANWALA VS INAM ULLAH, 2006 PTD-LAHORE-HIGH-COURT-LAHORE 551 (2005)

(a) Income Tax Ordinance (XXXI of 1979)----

----S. 151---Exemption from tax---Scope---Such exemption was limited to original receipient of income and would not extend to a person receiving any payment wholly or in part out of income.

(b) Income Tax Ordinance (XXXI of 1979)---

----S. 151 & First Sched. Part-IV, para. A(2)(a)---Partnership Act (IX of 1932), S. 4---Export rebate claimed by partner of firm---Validity---Partner in a firm would be entitled to business benefit in individual capacity---Firm was not a legal entity and was a collective name of its partners---Partners in a firm would be deemed as original recipients of income under S.151 of Income Tax Ordinance, 1979---Export rebate was allowable to a partner of firm.

Commissioner of Income Tax v. Nasir Ali and another 1999 PTD 1173 rel.

Muhammad Ilyas Khan for Petitioner.

ORDER

By this single order C.T.R. No. 62 of 1998 titled "The Commissioner of Income Tax Gujranwala v. Inam Ullah C/o Ikram Industries, Wazirabad", C.T.R. No.65 of 1998 titled "The Commissioner of Income Tax Gujranwala v. Mr. Inam Ullah C/o Ikram Industries (Pvt.) Ltd. Wazirabad, C.T.R. No.75 of 1998 titled "The Commissioner of Income Tax Gujranwala v. Anjund Ehsan C/o Ikram Industries (Pvt.) Ltd., Wazirabad" and CTR No.76 of 1998 titled "The Commissioner of Income Tax Gujranwala v. Messrs M. Iqbal C/o Ikram Industries (Pvt.) Ltd., Wazirabad" are decided, for common questions of fact and law are involved in all these references.

2. Messrs Ikram Industries Wazirabad is a registered firm of which respondent Inam Ullah is a partner who declared his income from share in the said firm to the extent of 20%. The firm is engaged in export business and as such entitled to claim rebate under para. A(2)(a) of Part-IV of the First Schedule to the Income Tax Ordinance, 1979. Respondent requested for allowing him export rebate. The ITO in his assessment order, dated 14-6-1987 declined the claim of refund on the score that exports were made by the firm and respondent was not directly involved. The appeal before the Commissioner of Income Tax (Appeals) met the same fate, who vide order, dated 31-12-1987 dismissed the appeal, holding therein that rebate being partial exemption is restricted to the original recipient only. Income Tax Appellate Tribunal by accepting appeal, set aside the order of Commissioner wherein it was held that allowance of rebate is not limited to the firm only, but extends to its partners to the extent of their share.

3. The references have been filed for determination of the following question of law which statedly has arisen out of the Tribunal's order, dated 17-3-1993 in I.T.As. Nos.240 and 241/LB of 1987-88:--

"Whether on the facts and circumstances of the case and in the presence of section 151 of the Income Tax Ordinance, 1979, the learned Income Tax Appellate Tribunal was justified in holding that claim of export rebate is also allowable to the partner of the Registered Firm".

4. Learned counsel for the Revenue while taking exception to the decision of Tribunal, has submitted that as per the provisions of section 151, of the Income Tax Ordinance, are limited and is allowable to original recipient which, according to him, in the instant case, is firm and not the partner. It was contended that export was made by the firm and not by the partner in his individual capacity. The exemption/rebate is allowable to exporter and respondent, being partner, is not exporter. He, however when confronted with the decision to the contrary by the Hon'ble Supreme Court in this respect, has frankly conceded this fact.

5. Heard learned counsel for the Revenue and perused the record.

6. Section 14 of the Income Tax Ordinance, 1979 empowers the Federal Government to exempt income from the levy of tax chargeable under the Ordinance. The exemption can be categorized as complete or total exemption and partial exemption. The exemption under section 14 has been grouped in second schedule, wherein the exemptions are divided into four parts as under:-

7. It is clear from the above that exemption has been construed as reduction in tax rates. (Clause (b) and Part II) and reduction in tax liability (clause (C) and Part III). In other words exemption has been construed as reduction in tax and/or reduction in tax liability.

8. Clause (a) Sub-Para(2), Paragraph A, Part-IV of the First Schedule (the legal provision now governing the grant of export rebate) is reported below:--

"(2) Where the total Income of an assessee includes any profits and gains derived from export of goods manufactured in Pakistan:

(a) Income tax and super tax, if any, payable in respect of such profits and gains shall, subject to the other provisions of this clause, be reduced by an amount equal to fifty-five per cent of the amount of income-tax and super tax, if any, attributable to the sale proceeds such goods."

9. The above provisions manifestly reflect that tax liability of asset the tax liability of assessees whose total income "includes any profits and gains derived from the export of goods manufactured in Pakistan". Section 151 of the Income Tax Ordinance is reproduced asunder:--

"151. Limitation of exemption.---Where any income is exempt from tax, the exemption shall be, in the absence of a specific provision to the contrary contained in this Ordinance, be limited to the original recipient of that income and shall not extend to any person receiving any payment wholly or in part out of that income".

10. The perusal of the above section reveals that exemption is limited to the original recipient of that income and is not extended to any person receiving any payment wholly or any part out the of the income.

11. The definition of partnership as contemplated in section 4 of the Partnership Act, 1932, is "relationship between the persons who have agreed to share the profits of business carried on by all or any of them acting for all, and the persons who have entered into this relationship are collectively called a "firm". As such, a "firm" is only a collective name of its members. It is not a legal person or entity distinct and separate from partners." The partner in a firm is entitled to the benefit in his independent capacity. The firm which is not legal entity and is a collective name of its partners, therefore, the partners in a firm, are required under law to be deemed as original recipient, within the contemplation of section 151 of Income Tax Ordinance, 1979 (now repealed). The identical issue came up before the Hon'ble Supreme Court of Pakistan in the case titled as "Commissioner of Income Tax v. Nasir Ali and another" (1999 PTD 1173) and the apex Court has dealt with this question as under:--

"A proviso, therefore, has to be interpreted strictly, and where the language of main enacting part is clear and unambiguous, the proviso cannot by implication exclude from its purview what clearly falls within the express terms of the main enacting part. We would, therefore, first determine the scope and meaning of the main enacting part of section 3(4)(a) of the Ordinance in the light of the above stated legal position. It is quite clear from the enacting part of section 3(4)(a) of the Ordinance that where the total income of "an assessee" includes any profit or gain derived from the export of goods manufactured in Pakistan, the income-tax and super-tax payable in respect of such profit and gain is to be reduced by an amount equal to half of the income-tax and super-tax which is attributable to the sale proceeds of the export goods subject, of course, to the conditions mentioned in clauses (b), (c) and (d) of section 3(4) Of the Ordinance. The expression "an assessee" used in the enacting part cannot, by any logic of interpretation, exclude from its purview the partners of a registered firm if they are assessed to income. We are, therefore, of the view that the expression "an assessee" used in section 3(4)(a) of the Ordinance includes both the registered firm as well as its partners, if they' are assessed to income tax or super-tax. This conclusion is further fortified by the use of expression "income-tax and super tax" in the main enacting part of section 3(4)(a) of the Ordinance. It is admitted by the learned counsel for the appellant that the firm pays only super tax while the income-tax is paid by its partners. Therefore, we are in no doubt that the enacting part of section 3(4)(a) of the Ordinance is admissible both to the registered firm as well as its partners in respect of super-tax and income-tax payable by them, respectively."

12. In view of the above discussion, we find no force in the arguments, addressed by the learned counsel for the Revenue, in these references. Learned Appellate Tribunal has rightly held the export rebate is allowable to a partner of firm and as such questions referred is answered accordingly.

S. A. K./C-1/LReference answered.